RBA acknowledges the unknowns

AS always, it's what the Reserve Bank of Australia doesn't know that's important for the interest rate outlook.

When he fronted a parliamentary committee on Friday, RBA governor Glenn Stevens reiterated the central bank's recent switch to an on-hold stance for interest rates.

After its monetary policy meeting in February, and again after the meeting earlier this week, the RBA said "a period of stability" is likely for interest rates.

Economists have wondered just how long that might be, but rather than clear up the mystery, Mr Stevens just joined the club.

"I have not said how long a period because I do not know," he said.

And that's because he doesn't know how the economy's transition from the mining investment boom to whatever replaces it as a driver of growth will pan out.

"It is pretty typical for sectors to be going in opposite directions," he said.

The RBA would like to see "significant bits of the non-mining part of the economy" gain momentum.

"I think that is happening in certain areas and, hopefully, this is going to work out about right.

"It will be no small achievement if that turns out to be the case," Mr Stevens said.

But the RBA doesn't know if that transition - the fabled "rebalancing" of the economy - will be achieved without the need for more interest rate cuts.

The governor said he did not currently think that would be needed.

And if it is achieved, it's not known how quickly or strongly that will happen, so the timing or size of any eventual interest rate rises can't be pinned down either.

Elements of this "handover" are falling into place as demand for goods and services picks up outside the mining sector.

"The question really is whether that additional demand likely to be generated outside of mining as a result of all those trends will be just the right amount to offset the large decline in mining investment that we know is coming, so keeping the economy at near full employment," Mr Stevens said.

"The honest truth is that no-one can answer that question with great confidence."

Even then, there's no guarantee that tweaking the stance of policy will resolve any imbalances either fully or quickly.

"Monetary policy has a powerful effect on the general environment but it just cannot fine tune quarterly or even annual pace of demand that well," Mr Stevens said.